Sole Proprietorship, Partnership, or Corporation

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Elizabeth Alfred
October 2010

BUSINESS PROSPECTS OF “THE THUNKER” 2 Business owners can form sole proprietorships, partnerships, or corporations. Each type of business entity has its pros and cons that can have a significant impact on the business and its owners. When considering a new product for a saturated market such as the clicker or the three-pronged power cord, there are several pros and cons to consider with each possible choice. Although the author personally has no inventive talents whatsoever, for the purposes of this paper the potential invention will be called “The Thunker”. As the family is not exceptionally well off in this scenario, starting costs will be an issue of great importance. There are closely similar items to “The Thunker” saturating the current market, but they pose incredible safety hazards that “The Thunker” does not. Therefore, there is exponential growth potential, and expansion costs will need to be considered rapidly to meet expected demand. As the prospective owner with no financial skills other than common household budgeting and little management experience consisting of only of raising children, there are a lot of concerns of the potential legalities, paperwork, production, marketing, and general management that taking on such an enterprise alone would create. There is always the possibility that someone could steal the idea because the proper copyrighting paperwork isn’t filed, for example. The potential market for “The Thunker” is currently experiencing only a 2% annual growth rate, and “The Thunker” would not only open sales for a close to replacement only market, but has the technology to be applied to many other products as well, improving them and vastly increasing the need for potential growth funding. There is also, as with any new business venture, a significant amount of risk involved in creating “The Thunker” and not accumulating the expected profit. It is unwise to invest one family’s future in this potential without some sort of security and protection should the business fail for any reason. The advantages of a sole proprietorship are simple and obvious. Gone the hassles of explaining business decisions to anyone. Funding is on a personal level, in this specific scenario it is only a husband that needs convincing. There are few legal restrictions, in this circumstance perhaps limited to a copyright registration, and hardly any forms to fill out. You need only file with your local city or county clerk’s office. You are management and, therefore, you can respond more quickly with day-to-day changes and decisions. Taxes are simpler, as a personal return includes your business tax, and further it is unnecessary to prepare a balance sheet as in more complex business returns (Ebert & Griffin, 2011).

However, there are disadvantages that go hand in hand with the advantages of a sole proprietorship. Social security and Medicare taxes are twice the amount paid for an employee, with whom the cost of taxation is split by law (Reuters, Thompson 2010). Startup and expansion funding is an issue because it is on a personal level, and is thereby limited to the available funds BUSINESS PROSPECTS OF “THE THUNKER” 3

of the husband in this particular scenario, or perhaps if luck falls kindly, the available funds of extended family and friendly donations. Also, should the proprietorship fail, it is completely a personal responsibility, meaning that any potential creditors could come after personal bank accounts, homes, and vehicles to satisfy debts incurred for the business (Ebert & Griffin, 2011). In addition, as the sole manager and decision maker, there...
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